On January 1, 2018, Alamar Corporation acquired a 43 percent interest in Burks, Inc., for $192,000. On that date, Burks's balance sheet disclosed net assets with both a fair and book value of $327,000. During 2018, Burks reported net income of $83,000 and declared and paid cash dividends of $25,000. Alamar sold inventory costing $22,000 to Burks during 2018 for $39,000. Burks used all of this merchandise in its operations during 2018. Prepare all of Alamar's 2018 journal entries to apply the equity method to this investment
Record the acquisition of a 43 percent interest in Burks.
Record the 43 percent income earned during period by Burks, an investment recorded by means of the equity method.
Record the investee dividend declaration.
Record the collection of dividend from investee.
1) Investment in Burks inc 192,000
2) Investment in Burks inc (83000 X 43%) 35690
Equity in investee income 35690
3) Dividend receivable (25000 X 43%) 10750
Investment in Burks inc 10750
4) Cash 10750
Dividends receivable 10750
Purchase price of Burks stock $192,000
Book value of Burks stock ($327,000 × 43%) (140610)
Unidentified asset (goodwill) 51390
Life Indefinite Annual amortization 0
No intraentity profit exists at year’s end because all of the transferred merchandise was usedduring the period.
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